Billion-dollar success stories like Bonobos, Warby Parker, Dollar Shave Club, and Casper have been disrupting the eCommerce space in recent years. Jeff Jones, a managing partner at the Andreessen Horowitz VC firm, calls this innovation “eCommerce 2.0.” But the brands seeing the greatest growth are quite different from their eCommerce predecessors.
The last 12-24 months have seen the emergence of micro-brands, companies focused on a niche product for a niche customer. They’re fundamentally changing the consumer brand landscape. Essentially, they’ve put legacy macro-brands on notice, demonstrating that there’s value and consumer preference to be captured by being incredibly relevant to a traditionally tiny subset of the consumer population.
These direct-to-consumer micro-brands, also known as digitally native vertical brands (DNVBs) or vCommerce brands, are trailblazing entirely new approaches to retail.
The DNVB is a brand, and that brand is vertical. The name of the brand is on both the physical product and on the website. The DNVB requires the commercialization of an eCommerce channel, but that channel is an enablement layer — it’s not the core asset.VCs sometimes think these should be valued like technology companies. Some of the valuations still reflect this misguided notion. These are retailers, not tech companies.” — Andy Dunn, CEO of Bonobos (basically the godfather of vCommerce, the OG of DNVBs)
Smaller brands, bigger impact
vCommerce brands or DNVBs have a radically different business model; they combine the growth of an eCommerce company with the margins of a brand. DNVBs are cutting out the middleman and doing away with inefficient legacy supply chains. Direct-sourcing lets these brands quickly iterate on product design and demand. DNVBs also differ in the role they play in their consumers’ lives and their way of approaching, understanding, and addressing them.
So, what can emerging brands and legacy retailers learn from the digitally native darlings taking over the eCommerce scene?
1. Craft a great experience
DNVBs put the consumer front and center by offering a buying experience that is as memorable as the product. They have a deep understanding of how customers’ lifestyles, decisions, and habits are influenced by technology.
The meaning of “branding” has expanded beyond a logo, a name, a voice, and a personality. For DNVBs, a combination of product, shopper experience, and customer service collectively become the brand.
These brands pay close attention to their customers’ needs and they take into consideration how shoppers want to consume information. The brands build loyalty by creating strong and relevant experiences through adapting their value chain to their customers’ wants, needs, and ever-changing habits.
2. Start really simple
We’ve had the good fortune to work with over a hundred DNVBs over the last 5 years, and we’ve shared some massive growth with many of these brands.
They’ve been all over the map in terms of industries and products — apparel, health and nutrition, beauty, footwear, watches — but there was absolutely a common thread. All of these brands started out by getting one thing right, revolutionizing a vertical with a single solid product. From there, they’ve all diversified significantly, but always with a clear vision, discipline, and focus. Whenever we’re consulting an early-stage DNVB, we harp on starting simple and staying focused.
3. Build your tech on a foundation of humanity
DNVBs drive more customer intimacy than any other type of company, since they collect data on every transaction and interaction to get to know how their customers behave online.
Their goal is to be relevant, highly personalized, efficient, and convenient. They make a point of knowing what customers want, so that they can not only meet but exceed expectations.
This means that when reaching out to customers, messages have to feel personal and add value. A customer that just bought a pair of jeans, for example, should receive a message showing a new belt to go with them — not a generic message about a new product line launch. Standardized messaging doesn’t cut it for DNVB customers.
4. Measure what matters
Hint: What matters is your customer acquisition cost (CAC).
Another common thread amongst successful DNVBs and micro-brands is their ability to leverage first, second, and third-party behavioral, demographic, and psychographic customer data to have laser-focused digital advertising.
So, when these brands are increasing their gross margin by cutting out inefficient supply chains, they’re effectively freeing up that margin to outspend competitors to acquire the right customers. But that customer acquisition cost becomes — with the exception of perhaps inventory — the highest and most variable cost for the business.
The brands that knock it out of the park with quality and scale are able to succeed because they’re extremely efficient in their customer acquisition. And as we move toward GDPR internationally and, eventually, domestically (yes, it’s coming), it’ll be critical that brands keep an eye on the ever-changing landscape and adapt quickly.
5. Harness the power of the online influencer
DNVBs are geared towards digital natives, and they’re establishing the precedent for the relationship modern brands and modern consumers can build with one another. So naturally, their brand experience is created to be shared on social media. These brands rely heavily on visual content displayed across a multitude of marketing channels. To scale content creation, meet content needs, and maintain creative quality and authenticity, DNVBs often rely on user-generated content.
User-generated content displayed on-site increases conversion by upwards of 161%, and it gives brands an endless well of brand-right content that prospects relate to and want to interact with.
Jake Kassan, CEO and Co-founder of MVMT Watches, which has near a million Instagram followers, uses customer content to fuel his brand.
DNVBs have a deep understanding of what inspires their community, and they curate user-generated content to further brand image and reach, offer social proof for products, and welcome customers to engage with their brands.
6. Take online offline
Being digitally native doesn’t mean being digital-only, and DNVBs do not ignore the importance of the brick-and-mortar presence. As they mature, DNVBs commonly expand into real-life shops through partnerships with third-party retailers, pop-up stores, or by creating their own physical locations.
However, these physical locations are deeply integrated with the overarching brand experience and their openings are heavily marketed with influencers, strategic content, and promotions. Ultimately, they grow from eCommerce to include other channels, but without sacrificing their brand or customer experience.
While most eCommerce companies are distributing other companies’ goods and battling it out on Amazon, DNVBs are leading the way and shaping the future of retail through improved technology, social sharing, and understanding the shifts in consumer buying behavior.
Final thoughts…
BVAccel has been a part of this world for five years, and we’ve seen a bunch of successes and (relative) failures, both first and second-hand.
It’s certainly not to say that the things we’ve talked about here will guarantee success. Rather, we’ve put this together with the hopes of sharing a relevant perspective that can help guide emerging brands. Like counting cards in blackjack, having this information isn’t a guaranteed win, but hopefully it’ll help swing the odds further in your favor.